The Non-Fungible Characteristics of Digital Equities

Lori Jo Underhill B.S., J.D. is a Digital Economy Analyst and an Executive Consultant with over 30 years’ experience in hardware and software technologies. Here she provides perhaps, the best, at least the most concise description of digital assets.

A Digital Equity is a security that has unique ownership, identity, and authentication characteristics creating it inherently distinct from any other Digital Asset. These unique qualities add a fundamental attribute characteristically inherent to the Digital Asset. This, coupled with the fact that Digital Equities are not traded in just one market, creates an unequal material economic value, further supporting a non-fungible legal determination.

A blockchain or distributed ledger records a transaction for a particular asset. That asset’s ownership is determinable through the line of transactions that are immutable, traceable, and identifiable.

Securities law in many jurisdictions strictly require reporting and accountability, place limitations on legal accredited ownership, enforce custodianship rules, and require transparent exchange traceability for purposes of KYC and AML regulations. These requirements render the asset non-fungible by the very nature of its lack of agnostic, non-unique, and non-fluid exchangeability. Digital Equities are distinct from tangible currencies and other tangible assets that can be exchanged and transported entirely outside of electronically traceable conduits, and do not fall under strict reporting and accountability requirements.

There are three further definitions that should be considered to properly sub-classify Digital Equities. The assets classified as Digital Equities can be either a “Manifested Asset”, “Representative Asset”, or an “Underlying Asset”. Digital Asset sub-classes will further categorize these assets as Digital Equity – Entity Security, Digital Equity – Real Estate, Digital Equity – Bond, Digital Equity – Real Property, Digital Equity – Digital Property, etc.

“Manifested Asset”: A Digital Equity that is a digital non-fungible unique manifestation of a store of value without an underlying asset. These are unique, serialized, and non-fungible assets.

“Representative Asset”: A Digital Asset that is the representation of an underlying fungible or non-fungible asset (tangible, intangible, or digital). Non-fungible as a Digital Equity, and fungible as a Certificate of Value.

“Underlying Asset”: An asset (tangible, intangible, or digital) represented by another Digital Asset.

It is conceivable that it will be determined that a non-fungible Representative Asset can “wrap” a fungible Underlying Asset such as a share of fungible common stock. Law is firmly rooted in definition and classification, and this construct supports existing regulatory and financial infrastructures.